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CFA Level I · CFA Level I Exam · Guidance for Standard III: Duties to Clients

A firm that does not comply with the GIPS standards builds a five-year composite for its balanced strategy. To best satisfy Standard III(D), which treatment of accounts is most appropriate?

Terminated accounts should be included in the composite history. Standard III(D) guidance lists this as a way to present fair, accurate, and complete performance. Excluding departed accounts or undisclosed small accounts would bias results upward and mislead prospective clients.

  1. AInclude terminated accounts in the composite historyCorrect
  2. BExclude accounts that left the firm after poor results
  3. CInclude only accounts above a certain asset size without telling prospects

Explanation

Compliance guidance says terminated accounts should be included in composite performance history. Excluding poor leavers creates survivorship bias, and undisclosed size exclusions distort the record, as in the Kilmer example.

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